High-end smartphone slump hits ARM

By Edd Gent

Published Tuesday, February 4, 2014

A slowdown in demand for Apple and Samsung smartphones has hit the earnings of British chip designer ARM.

The firm, whose technology is in nearly every smartphone, reported a smaller than expected rise in fourth-quarter processor royalties of $130.4m (£80m) – up 7 per cent, but short of analyst forecasts of $137.9m.

ARM said its royalties continued to grow faster than the broader semiconductor market, but the degree of outperformance was impacted by slower sales of chips for high-end smartphones in the second half of the year.

The top-end smartphone market has begun to show signs of reaching saturation, with Apple and Samsung last month both reporting lower than expected sales of theiPhone 5S and Galaxy S4 phones in the holiday season.

But the Cambridge-based company said there was strong demand for licensing its technology across a whole range of applications from servers to dishwashers, exercise machines and wearable technology such as smart watches.

And chief financial officer Tim Score said that while smartphones, which provide just under half of ARM's royalty revenue, were "slowing down" at the very high end cheaper devices were selling well.

"Overall royalties in 2014 we expect to grow at a similar rate to the last three years, broadly 19 to 20 per cent," he said.

Royalties make up just over half of ARM's revenues, with licenses accounting for slightly less than half. Score said ARM continued to see strong demand for the licensing of its energy-efficient technology for new uses in networking, servers and wearable devices.

"We continue to benefit from the growth of digital electronics ... from smart consumer electronics such as phones, tablets and TVs, to energy efficient enterprise networking and serves to more embedded computing into things like smart sensors and wearable technology," he said.

ARM licenses its designs to partners, such as Qualcomm and Samsung, and receives a small royalty on every chip shipped. Some 10 billion ARM-based chips were shipped in 2013, Score said.

The chips in the latest smartphones, such as the first 64-bit processors in the iPhone 5S, carry higher royalty rates than those in simpler phones, but Score said mid and low-tier smartphones, where most of the growth will come in the next five years, were incorporating more and more ARM technology.